Wednesday, August 30, 2017

Cheaper Dollar Will Help GDP Growth

Popular Economics Weekly

The U.S. Dollar foreign exchange value is falling due to a number of factors. And it's already showing benefits, as Q2 GDP growth was just revised upward to 3 percent, and economists predict third quarter growth will also approach 3 percent.

That's because a cheaper dollar boosts the export of manufactured goods, as our goods will now be less expensive overseas, which adds to GDP growth. It
will hurt imports, which become more expensive (even imported oil), but that’s a
good thing because domestically produced consumer goods become cheaper, boosting
domestic jobs.

The euro now costs $1.20, when it was almost 1:1 to the Dollar last fall. Is
the Dollar decline due to the latest North Korean missile launch, or Hurricane
Harvey? Time will tell, but the U.S. factory sector is now doing very well
because of the cheaper dollar.

Durable goods orders of goods that last more than 3 years, such as autos and
appliances, are booming since the Dollar’s decline and this will help GDP
growth. The boost to exports is a plus for our balance of payments problem and
the budget deficit.

Graph: Econoday

Consumer confidence to date isn’t being hurt by either North Korean saber
rattling or the Charlotte riots, according to the Conference Board. The
Conference Board Consumer Confidence Index®, which had increased in July,
improved further in August. The Index now stands at 122.9 (1985=100), up from
120.0 in July, said their press release. The Present Situation Index increased
from 145.4 to 151.2, while the Expectations Index rose marginally from 103.0
last month to 104.0.

“Consumer confidence increased in August following a moderate improvement in
July,” said Lynn Franco, Director of Economic Indicators at The Conference
Board. “Consumers’ more buoyant assessment of present-day conditions was the
primary driver of the boost in confidence, with the Present Situation Index
continuing to hover at a 16-year high (July 2001, 151.3). Consumers’
short-term expectations were relatively flat, though still optimistic,
suggesting that they do not anticipate acceleration in the pace of economic
activity in the months ahead.”

All in all, a continuation in the dollar’s decline will also be beneficial to
manufacturing jobs, which tend to pay higher wages. And higher wages are needed
to boost worker productivity and get us out of the slow growth syndrome the U.S.
has been living through since the end of the Great Recession.

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Harlan Russell Green, Editor/Publisher

Harlan Green is a Mortgage Broker in Santa Barbara, California since the 1980s and economist. As Editor/Publisher of PopularEconomics.com, he has published 3 weekly columns-- Popular Economics Weekly, Financial FAQs, and The Mortgage Corner-since 2000, and is a featured business columnist for Huffington Post. Please refer to the populareconomics.com website for further information.